Tobacco giant calls for zero tolerance on tax evasion by illicit suppliers

93% of smokers still get their fix; paying an average of 250% more has contributed to a 430% increase in people sharing cigarettes: Batsa.
An increase in excise taxes when the ban is lifted would be another ‘absolute gift to criminal suppliers’. Image: Shutterstock

After four months of not being allowed to sell tobacco products, British American Tobacco South Africa (Batsa) is now more than ever convinced that the cigarette ban is increasing illicit trade.

This comes after an independent study done by the Research Unit on the Economics of Excisable Products (Reep) within the University of Cape Town revealed that 93% of South Africa’s approximately 11 million smokers are still able to purchase cigarettes.

Read: Consumer criminalisation could encourage a culture of tax avoidance

Batsa says this means millions of illegal transactions are taking place across the country every day.

“The market has been completely taken over by illicit cigarette suppliers at the expense of law-abiding and tax-compliant manufacturers like Batsa, and the fiscus continues to lose R35 million in taxes every single day.”

It adds: “After 118 days of lockdown [as at July 22], the ban on tobacco products sales has now cost over R4 billion in excise taxes alone and substantial job losses.”

It says the research also shows that there has been a 430% increase in the number of people sharing cigarettes and potentially exposing themselves to Covid-19.

Sars, consumers being hit in the pocket

“This is largely due to the high price of the illicit products, which on average are 250% higher than the pre-lockdown price,” it says.

Batsa head of external affairs Johnny Moloto also warned that replacing the prohibition with excise increases would compound the devastating damage of the last four months. A post-ban hike in excise tax will “permanently” hand most of the cigarette market to criminals who do not contribute to this country’s fiscus.

“At the moment the tobacco market in South Africa is being run and dominated by illicit suppliers who, quite obviously, are breaking the law and making billions of rand in illicit profits.”

Moloto says the “criminal” behaviour shown by those selling cigarettes on the black market is nothing new.

Billions being made, all tax-free

“These illicit suppliers are not suddenly going to become compliant and start obeying the law and paying taxes when the ban is eventually lifted. They evaded taxes prior to the lockdown, they’ve made billions tax-free during the ban, and they will evade taxes after the ban.”

Moloto calls on government to allocate significant new resources to the South African Revenue Service to ensure that the market can be taken back from criminals in the aftermath of the ban – as well as a zero-tolerance approach to evasion when the ban is lifted.

“A dramatic increase in excise taxes would be second only to the ban itself as an absolute gift to the criminal suppliers,” he says.

“It would prevent the legal and tax-compliant industry from taking some of the market back from the illegal suppliers and make South Africa the largest illicit tobacco market in the world.”

Read: Stopped smoking? Here’s what you can save

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The tobacco giants have no chance –
There is a Chancellor in the Residence of those who have benefited from the sale of illegal cigarettes for DECADES !!

What exactly did the government expect would happen with the ban? Prohibition of a sought-after products (like alcohol and cigarettes) have not worked in the past in first-world countries with an efficient and capable policing system. How did they think it can work in a third-world Africa country where the police are as corrupt as the criminals themselves. Stop being ridiculous.

The tobacco giants – and other big business – have only themselves to blame. Their spineless appeasement of the regime caused all of this. The one and only thing the regime understands, is resistance, threats and forcefulness. So instead of meekly supporting the regime, the tobacco giants should take a leaf from the book of the taxis and the teacher unions, and openly defy and criticize the regime. Sell your product underground and don’t pay tax. That is the language the cadres understand.

mmm not sure I agree with you. Johann Rupert has been one of the few voices of criticism coming from business, hence all the vitriol that he gets from Malema and the rest of the thugs. The Rupert family founded BAT and are still major shareholders, directly and via Reinet.

The ANC is coining it. They will milk this for as long as possible and fill their coffers with billions. The ANC is fully aware of the black market trade as they the ones running it.

and that it is why my standpoint always is till proven wrong: the government is not really concerned about one’s health / well-being as long as there is something for themselves in the deal – i have now the same attitude just the opposite way.

if they were really concerned about the sa citizen’s health the public hospitals would not have been in such horrible state and there would have been enough on par quality hospitals – not slaughterhouses. It was degraded over 20 years – nothing is fixed overnight – not even with a doctor as minister of health

if they were really worried about the voter’s well-being, top electrical engineers would not have been encourage to leave eskom and work overseas – foreign german engineers would not have been now invited to sa to try and fix eskom’s negligence management over 20 years.

The President and his troop has been aware for a while now that the study done by the UCT proofed that the ban has the opposite effect of what they “FOOLISHLY” thought would happen.

Even most of the people that used to vape have gone back to smoking.

I am convinced there is grounds for a class action suite and because they don’t act to rectify their mistake “knowingly” there is also grounds for a criminal case. Many have died because if it and many if not most have suffered greatly.

I don’t smoke but I will support any action taken against these evil humans.

They should be removed from society.

Snow ball’s hope in hell of this ever happening.

NDZ’s backers for the next election will be out of pocket, then let’s not forget SA’s favorite son the one and only (thank goodness) Edward Zuma plus a whole prison full of others.

So deep in it you won’t believe.

It is just a matter of time before the great illicit liquor trade is exposed, then we will see who went swimming without a costume….

You get a forest of giraffe, a pod of hippos and a prison of cadres.

The tobacco trade is a good example of how the price acts as a signal to suppliers, to fill the demand for a product. Not even the power of the state can stop this process. The threat of legal action only serves to increase the risk, and therefore, increase the price. The price is a messenger that tells the supplier how much the consumer appreciates his efforts. When this message is strong and convincing, no army or police force can prevent the supplier from obeying the price command. The command of the price carries more weight than the commands of the Central Command Council or Bheki Cele.

When the state uses its monopoly on coercive violence to threaten suppliers, those suppliers will ignore the threat of state violence if the price messenger convinces them to do so. This proves to us that the Commander Price is more powerful than Commander Cele and Commander Ramaphosa combined. This is quite a relief to the free-market, capitalist members of society because Commander Price promises to keep on satisfying their basic needs, even when the economy is decimated by myopic socialist policies. As we have seen in Venezuela and Zimbabwe recently, Commander Price refuses to supply food and necessities to members of the collectivist society but keeps on serving the capitalist members of society.

The ban on cigarettes and alcohol is a running experiment for those who support the ban on rhino horn. The ban on the trade in rhino horn merely shifts the profits from the farmer to the poacher. Everyone who smokes while the ban is in place is like the consumer of the rhino horn. They send a message via the price to the illegal suppliers to poach rhinos. The fact that the illicit tobacco trade took the place of the legal trade proves this point. The price signal is the ultimate summation of human emotions, wants and needs. No decree from any government can stop humans from acting like humans. Therefore, no government decree can ever stop the market mechanism from serving consumers who can afford the price.

So true. Governments may have a monopoly on force but are relatively ineffective when it comes to pricing signals. When I was a lot younger we used to go to Zim on holidays. The government had fixed the exchange rate such that the Rand and Zim dollar were almost equal. In reality the Zim dollar was only worth about R0.50. In such a scenario it was very easy to exchange Rands for Zim dollars but the reverse was impossible. However, behind the Shell Garage in Messina (as it was then known) was a Zim gentleman who would service all your Forex needs. We used to get dollars at double the official rate. Travellers from Zim shopping in Messina would pay even more for a Rand. It made for a cheap holiday. Crispin was simply a currency trader who made a good living.

Up north near Chinoyi, we patronised a shop run by a Portuguese fellow. We sought to purchase milk amongst other foodstuffs. Unfortunately milk was not available. According to Costa*, the regime had fixed the price to avoid exploitation and ensure milk was affordable to the masses. The whole supply chain was thus disrupted and the farmers stopped producing. Or did they? Once we got chatting and we were “cool” with one another, Costa informed us that milk really was available in the back room. At a price. Double the official rate. We gladly acquiesced as dry corn flakes are not fun.

*Names have been changed to protect innocent people involved.

I remember those times fondly. A group of about 10-12 of us used to take an average house boat on Kariba in Feb for 5 days each year. Rand cost was about R1,200/ day for all of us! That included all food and unlimited Zambezis and bottles of smirnoff etc.

The hangovers were epic. But happy days.

Thank you for proving the point with this lovely story.

Staying with the analogy of price as a messenger, in your case price acted as a “double agent”. Mugabe tried to suppress the price action. He tried to kill the messenger. He only succeeded in pushing the messenger “underground”. Price as a messenger, who carries the commands of consumers to suppliers, went underground and operated as a double-agent for suppliers on the one side, and for consumers on the other side. The legal trade became an illicit trade, while nobody paid taxes. The system became more efficient in the face of coercive intervention from the socialist government.

In this weird way, anarchy brings its own efficiencies. The socialist is proven as the biggest loser yet again.

Billions in Tax are NOT being paid to SARS by the ILLEGAL sellers of Cigarettes & Booze! What is Cyril & Tito doing about this? Nothing!
Why is the Police not doing their jobs? Most probably they are involved!
Cyril, stop telling us what we ALREADY know, do something and get these Criminals locked-up and all the money that has been stolen, must be returned. Cyril, you are starting to sound like Donald Trump, all talk no action!!!!!!!

You are very wrong about Donald Trump, he is the only one who takes action, you must be watching and reading FAKE NEWS!

Governments the world over are all involved in racketeering, drugs, smuggling and everything you can think of. They are the most sinful of individuals.

As my friend Pauly said, with all the trading going on in the illicit market THEY MUST BE BRINGING IN THESE TRUCKLOADS FROM SOMEWHERE??? Why is there NO NEWS about arrests and confiscation of these illicit (free from tax) cigarettes?????????????? FOLLOW THE MONEY

Long live the cigarette smugglers! May the Gods bless and protect them.

It takes a bit of running around but alcohol is still available; at a premium of course.

Zokey,

I am also amazed at the speed a which the illegal sales’ logistics scaled up. Just BAT is an enormous enterprise. Dozens of large truckloads per day.

Also puzzling : the old stock must surely by now be sold out. Yet, yesterday I saw a packet with the south african labelling and telephone numbers and health warnings – but without the tax proof. That tells me the factory is operating.

That UCT study – it says 93% still smoke but surely even only the price increase (never mind the clandestine purchasing) must have reduced volume per person.

Second-hand talk is about farmers along Zim and Bots borders either cooperating with or not daring to try stop the smugglers that have created new dirt paths across their farms.

The SAPS and SANDF do not confiscate the large shipments because the smugglers get inside info of where the roadblocks are. If ten cops decided to conduct secret (only that ten know) roadblocks they would catch smugglers easily.

No no no. We don’t want the smuglers to get caught. I swear I will assist them if required.

The market for illicit tobacco traders was already entrenched before, now normal law abiding people are swelling their coffers. I was able to buy cigarettes for my husband easily, albeit with 100% mark up they were his regular brand, not even some unknown suspect import from across the border. Everyone I know who smokes or drinks has had no problem getting supplies of either at a price. The urban myth of talking to the petrol attendant is not a myth. Within 1 minute I had a contact and did the deal over WhatsApp within hours, he was actually a very nice guy even though I felt like a criminal. I am 73 years old and for first time in my life committed a criminal act. major plus point for us that hubby has not smoked for 3 weeks, his surplus illicit cigarettes we have sold on!

Love this story, sounds like a drug deal!

Saw an interesting comment yesterday.

If say 10 000 police or soldiers smoke( probably a helluva lot more) where do they get their cigarettes? Ditto politicians and cabinet members. So these officials of the state or our elected officials make the laws, are supposed to enforce the laws, (arrest the criminals ) and break the laws.

Its a strange world we live in.

Government does not care about tax losses, they already have their begging bowl out.
Apparently they are “entitled” to an IMF bail out with No conditions. Let’s see how that goes.

Changing hands. No return to the old economy was the promise. Land will be cheap or given away. Trying growing stuff owned by the wrong kind. Gates have good advisers and listeners.

Illegal cigarettes was there before lock down……. even then NOTHING was done about it?

BAT oh toothless one. As a 68 year old smoker thank goodness for the illicit trade. I have always frowned on this as a law abiding citizen before the lockdown. The decisions by Goverment, our Lame Duck President and that women NDZ with no real Scientific proof says it all. SARS is losing a fortune. In the beginning it was suggested to raise taxes and this would have helped to finance the needs of Medical and the poor. Borrow borrow borrow. Wonder who is going to pay this back?

As for the cops leave us alone and focus on Gender Based Violence, drunken driving etc

I will continue to buy from the Black market until I have recovered my bucks after lockdown and will then revert back to paying Sin and other taxes on my cigarettes.

For now up yours.

WJS

BAT SA must just join them. Flood the market with zols.

SOME TRIVIA:

Average large cigarette truck carries between 250,000 – 450,000 boxes of cigarettes – that is a standard 40` HC ctr/ high cube pantech (depends on risk profile of owner). So 6m to 10m ciggies on a truck.

Street value per truck upto R110m

Production value per truck R9m – R11m delivered to wholesale dealers. Excluding structural bribes/ greasing – apparently.

Profit approx R100m per truck from source of production.

Consumption in SA – 140m cigarettes per day average allegedly about 12 cigs per person per day.

14 trucks per day SA production – profit incentive is roughly speaking R1 billion per day.

Lock down no cigarettes – 110+ days!

I ask you who is going to stand in the way or even try – of a R100 billion in profits, climbing by R1 billion per day. That is stupid money. Gun running and drug running combined is not even a fraction.

So the tobacco criminal oligarchs have so far made R110 billion give or take 20 billion. To put it another way, that is about 33% of the R370 billion of the COVID/ LOCK DOWN relief fund!

If you think that a very large chunk of that is not finding its way into many places and pockets it is not supposed to! Well then i have a few bridges for sale.

State capture then, maybe, has gone to a whole new level and it took just 1 month, not 15 years. When decisions and rules are nonsensical – just think about this, then they really make a whole lot of sense.

Just so frustrating that the media does not shine more of a light on this , some have even come out in support of NDZ or berated those who question her bona fides

Blind man with a stick can see what is going on here!

End of comments.

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